Remington Capital » Travis Schmidt

Mixed News on Office Vacancy and Rents

Travis — Fri, 18 Feb 2011 22:05:58 +0000

According to a new report by Colliers International, the U.S. office market entered the year on a relatively strong note after the fourth quarter, with a sharp drop in vacancy and a healthy increase in occupied space. But rents continue to languish, according to Ross Moore, chief economist at Colliers International and author of the report. The fourth quarter marked a key turning point toward recovery, he says. “With the economy now posting robust growth, all that is needed for a full recovery is a surge in employment.”

With the economy making strides, and the addition of private sector jobs, leasing markets are expected to continue improving as 2011 unfolds. The fourth quarter data confirms his view that the U.S. office market has entered the recovery stage and will likely make continued progress, assuming the economy stays on the current path, says Moore. Most encouraging is the 12-month-long gain in private sector employment, he adds.During the October-December period, professional and business employment was up 2.2% year-over-year, the report says. Widespread rent increases are still unlikely anytime soon, according to Colliers International.

The U.S. national office vacancy rate moved substantially lower during the fourth quarter, dropping 29 basis points, with 100 basis points equal to 1%. This represented the first drop after 12 quarters of rising vacancy. Office vacancies finished the quarter at 16.11%. Moore expects that to mark the beginning of a long decline in vacancy.

During the fourth quarter, downtown vacancies decreased 23 basis points to 14.81%, while suburban vacancy rates fell 32 basis points to register 16.69%.For the year, the U.S. national office vacancy rate fell 12 basis points after peaking in the third quarter.

Providing Expert Advice on Capital Structure

Travis — Thu, 03 Feb 2011 19:46:36 +0000

In most cases, if your client is looking for 80% LTV on senior debt, you’re going to have a hard time finding them the capital they need. Understanding the capital stack will allow you provide your client with some industry expertise and quite possibly a more feasible capital structure.

Suppose your client has $2 million in senior debt on an apartment complex that represents 50% LTV. Your client is calling you because he needs another $1.2 million to complete upgrades and repairs, but the bank won’t refinance his project up to 80% LTV. You could spend time trying to find a lender who would refinance this project up to 80% LTV, and if you were lucky enough to find someone the interest rates are likely to be higher than the financing currently in place on the project. Perhaps a better suggestion would be to secure mezzanine financing to supplement the existing loan and get the total financing up to 80%.

As compared to financing for residential properties, commercial properties are much more unique and seeking the correct type of financing is more nuanced. This is also one of the reasons that your clients need your expertise to help them get the financing they need.

Senior Housing Insights

Travis — Thu, 20 Jan 2011 04:53:28 +0000

According to recent polls conducted by NREI, investors in senior housing report that occupancy rates have declined as a result of the condition of the housing market, as well as the overall economy. There were mixed opinions on when occupancy rates would begin to recover, but most agreed it would be this year.

Increased Sales Volume in 2010 Could Lead to Increased Asset Liquidation in 2011.

Travis — Sat, 15 Jan 2011 00:29:46 +0000

Because the volume of commercial real estate sales nearly doubled in 2010 from $54.6 billion in 2009 to over $100 billion, financial institutions now have a basis for establishing pricing which will allow them to decide whether or not it is in their best interest to foreclose on commercial properties in default. Here is a recent article on the subject: http://bit.ly/gZ75xw

Commercial Real Estate Capital in 2010

Travis — Sun, 02 Jan 2011 04:32:12 +0000

REITs are one of the largest sources of private capital for real estate investments. REITs that invested in debt secured by commercial and residential real estate seemed especially successful, in some cases posting total returns over 200% for the year. Is there capital available for commercial projects in today’s market? The answer is yes; private sources of capital have been very busy in 2010 and will continue to provide capital for commercial projects through 2011.

Financing for Office Properties?

Travis — Fri, 24 Dec 2010 20:58:37 +0000

Many experts in CRE will tell you that the office segment of the CRE market was one of the last to be impacted by the downturn and will be one of the last to recover. Does this mean that there is currently no financing available for office projects? Yes, financing is available for good projects. http://bit.ly/dQB4eH

Retailers Taking Advantage of Opportunities in Distressed Retail Property

Travis — Sat, 18 Dec 2010 06:37:15 +0000

Large retailers like Wal-Mart and Target have recently started to aggressively bid on vacant big box properties. In some cases retailers are outbidding investors by 20-30%. Since the properties are able to be acquired at massive discounts, the cost of occupancy for properties purchased by the retailers today will be much lower than if they were to lease the property from a developer. Ownership of the properties will also allow the retailers greater flexibility in making changes to the buildings.

Joint Venture Financing

Travis — Mon, 06 Dec 2010 09:46:10 +0000

Since I brought it up last week, I figured I’d better talk a little bit about Joint Venture financing. This is the financing option that many borrowers will really need when they contact you looking for hard money. Since hard money lenders will only go up to 60% LTV at best, clients looking for higher LTVs will have to look at engaging a joint venture partner. With a Joint Venture, the investor generally contributes 80-90 percent of the required equity (though we have arranged deals that were 100%) and in exchange the investor shares in the profits and loss of the business. Most joint ventures usually include a buy/sell agreement that allows your client to buy out the investor within a specified period of time. One important thing for clients to consider when seeking a joint venture is this: What value they are bringing to the deal that would attract an investor to provide 90% of the necessary capital?

Does your client really need hard money?

Travis — Wed, 24 Nov 2010 19:25:49 +0000

In many cases, when a borrower with bad credit seems to have a good deal in hand, their first thought is that they need hard money. This is not always true. Hard money deals are fast moving and are based on the value of the collateral. Typically, the LTV on a hard money deal is between 50-60% and they always come with a higher interest rate. If your client has credit challenges and is seeking financing over 50%, joint venture financing could be a better road to go down than hard money. But I’ll save the topic of joint ventures for another day.

An interesting and often little-known function of hard money is that it isn’t exclusive to real estate; hard money can also be used to secure financing on other assets such as minerals and gemstones.

If you’re not sure if hard money is right for your clients’ projects you can call or email me, or ask a question below.

Hotel Distress Helps Stoke Transaction Activity

Travis — Tue, 16 Nov 2010 19:19:39 +0000

The return of the hotel transaction market has taken longer than expected, but a splash of high-profile acquisitions and a potential wave of distressed assets coming to market have many believing the dam is about to burst.

Jones Lang LaSalle Hotels, which tracks asset sales $10 million and higher, reports more than $1.1 billion of hotel sales in the United States in September alone. To put that figure in perspective, consider there was only $2.2 billion transacted in all of 2009. Given that the velocity of transactions is accelerating, Jones Lang LaSalle Hotels has boosted its 2010 forecast from the just surpassed $4.5 billion to $6.5 billion.

The buying opportunity of a lifetime many expected has not arrived, but several recent trophy assets acquired in major markets for top dollar indicate the paralysis of the past 18 months is over. A schizophrenic climate has developed, though, as many distressed assets haven’t come to market and some stabilized properties in secondary locations have drawn little interest from buyers.